ESG stands for environmental, social, and governance and these are the three main areas that are usually meant. When it comes to investing in ESG, the category is rather underdeveloped and no one broker is using the same methodology.
However, there is a set way to start investing in ESG, and below we will discuss what each step includes.
7 steps to ESG investing
The below summarized steps can guide you in your decision-making process. Remember, ESG is a broad term and should be defined by your own values and needs.
- Do your research
- Consider your values
- Weigh the pros and cons
- Make a decision
- Find an investment firm that offers ESG products
- Look for individual stocks or funds with an ESG focus
- Use online resources to research companies’ ESG policies
How do I take ESG into investing decisions?
It is time to elaborate on the above summary and get to work. Review each step to understand how this fits your personal needs.
- Do your research- it is important to be aware of the ESG policies of the companies you are considering investing in. You can often find this information on the company’s website or in their annual report.
- Consider your own values- think about what is important to you and whether or not the company’s ESG policies align with your own values. If it doesn't, keep searching and do not settle unless you deem it acceptable.
- Weigh the pros and cons- there are both positive and negative aspects to taking ESG into account when making investments. Make sure to consider both sides before making a decision. The biggest being higher return vs a sustainable future.
- Make a decision- in the end, it is up to you to decide whether or not you want to take ESG into consideration when making your investment decisions. For the sake of this article, we will assume you do.
- Find a broker that offers ESG investing- Many brokers do something around ESG. But try out different ones to find your fit. Will you actively manage your account, or make use of asset management? Do you want an overall ESG ETF, or do you want to invest in a set of stocks.
- Find individual instruments in ESG- Pick and choose from the possibilities and create a shortlist
- Make use of online resources to research the companies- Review and eliminate the options that do not align with your own views, and invest in the ones that do.
The ESG debate
Many people believe that companies that have strong ESG policies are more likely to be financially successful in the long run, and as a result, they argue that ESG should be taken into account when making investment decisions. However, there is no definitive proof that companies with strong ESG policies outperform those without them, and some people argue that taking ESG into account could lead to sub-optimal investment decisions. In the end, it is up to the individual investor to decide whether or not they want to take ESG into consideration when making their investment decisions.
ESG investing brokers
If you choose to take it into account, below is a list of brokers known to offer ESG transparency and investment products:
- Standard Chartered
- Bank of China
- China Construction Bank
- Agricultural Bank of China
- Bank of Communications
- Mitsubishi UFJ Financial Group
- Deutsche Bank
- Credit Suisse
- BNP Paribas
- Société Générale
- Lloyds Banking Group